A common question with delinquent citizens is whether the IRS can levy social security benefits. The answer, unfortunately, is yes they can, and worse, they do so regularly. Before intercepting an SS payment, the IRS generally sends notice CP91, Final Notice Before Levy On Social Security Benefits. This letter informs you of the impending levy and invites you to call the IRS to set up payments if you cannot pay in full.
Please understand that CP91 is not a substitute for a Final Notice, Notice of Intent to Levy and Notice of Your Right to a Hearing. That is the notice required by law under §§6330 and 6331, before the IRS can levy any assets or income whatsoever. The IRS uses Letter 1058 and notice LT11 as the Final Notice. The notice gives you the opportunity to request a Collection Due Process hearing before any levy action goes forth.
The CP91 notice is generally mailed well after a Final Notice was mailed. A notice CP91 does not carry CDP rights. Therefore, upon receipt of a CP91, you must take steps to avoid levy on your SS income apart from filing a Request for CDP hearing. See chapters 5 and 11 of How to Get Tax Amnesty for more details.
Internal Revenue Code §6331(h) is the statute that provides authority for an ongoing levy on Social Security payments. Paragraph (1) reads in pertinent part:
If the Secretary approves a levy under this subsection, the effect of such levy on specified payments to or received by a taxpayer shall be continuous from the date such levy is first made until such levy is released. Notwithstanding section 6334 [which sets forth exemptions to levy], such continuous levy shall attach to up to 15 percent of any specified payment due to the taxpayer.
Paragraph (2) then begins:
For the purposes of paragraph (1), the term “specified payment” means—
(A) any Federal payment other than a payment for which eligibility is based on the income or assets (or both) of a payee, ...
Thus, payments under any SS program are clearly covered by this levy provision. Typically, such levies are carried out under the Federal Payment Levy Program (FPLP). This is an automated levy program the IRS implemented in 2000 in cooperation with the Department of the Treasury’s Bureau of Fiscal Service (formerly the Financial Management Service).
Every week the IRS sends to the BFS a file identifying delinquent taxpayers. The BFS matches the names on the list against recipients of federal payments, including Social Security payments. (Though the SSA is an independent agency of the U.S. Government, the Department of the Treasury makes its payments.) After a match is made, both the IRS and the BFS send a notice to the taxpayer that the IRS will start levying 15% of the payment. The IRS’s notice is the CP91 mentioned above.
Many have argued that code §6331(h) actually limits the IRS to levying no more than 15 percent of one’s SS benefits, but this is just not true. As an alternative to using the FPLA, the IRS could levy up to 100 percent of your SS benefits through the levy procedure set forth in code §6331(a). That section requires action by a revenue officer, as opposed to an automated levy. Such a levy would continue at up to 100 percent until you argue for the allowed levy exemptions expressed in code §6334(a)(9), or a release of levy
under code section 6343 (levy causing a hardship). The table at www.irs.gov/pub/irs-pdf/p1494.pdf provides the levy exemption amounts for 2016 that are applicable to any levy. For more details on the 100 percent levy issue, see the article “Can the IRS Levy 100% of a Taxpayer’s Social Security Benefits?” by Paul Tom, PTT, Oct-Nov, 2014.
Despite the fact that the IRS is legally authorized to levy 100 percent of one’s SS benefit payments, the agency recently issued administrative guidance limiting certain SS levies. In Field Collection memoranda SBSE-05-1015-0067, October 7, 2015, the IRS announced that it will no longer subject Social Security disability insurance payments to levy via the automated FPLP. The change applies to payments made after October 3, 2015.
Please note this is a policy change only. It is not a statutory or regulatory change. Moreover, the policy applies only to SSDI payments. It does not apply to SS retirement income benefits. The Social Security Administration’s “Program Operations Manual
Systems GN 02410.305” confirms that beginning October 2015, the IRS and the Treasury will exclude SSDI payments from the FPLP.
This article is found in Dan's January 2016 issue of Pilla Talks Taxes.
LOOKING TO STAY CURRENT ON THE LATEST TAX CHANGES?
Dan Pilla's monthly newsletter, Pilla Talks Taxes, features news stories and developments in federal taxes that effect your pocket book. Each information packed issue shows you how to use little known strategies to cut your taxes, protect yourself from the IRS, exercise important taxpayers' rights and keeps you up to date on the latest trends in Washington on the important subjects of taxes and your rights. You can't afford to miss a single issue!
An email address is needed to receive this newsletter.
10 issues per year. $99.00 per yr Order Now!